It would seem to be a paradox: The U.S. economy is booming, unemployment is below 4 percent, and corporations are racking up billions in profits. Yet while incomes at the top are soaring, a new Pew Research Center analysis finds that the average American wage, adjusted for inflation, has the same purchasing power it did in 1978. This year, workers are getting average raises of only 2.7 percent—below the 2.9 percent rate of inflation. A majority of Americans say they live paycheck to paycheck. Why isn’t more of all the newly created wealth reaching the middle and working classes? (See Talking Points.) Economists cite a host of reasons, but I think the critical factor is this: Most companies no longer feel any obligation to share their success with their workers.
In fact, the reverse is true. Quarterly profits and stock prices are the gods corporations worship. Most executives believe their sole responsibility is to stockholders and management, not employees. On Wall Street, rising wages are seen as proof of bad management. After Congress gave corporations a massive tax cut this year, companies plowed more than $400 billion into stock buybacks that raised stock prices and dividends and made executives and stockholders much richer—but precious little trickled down to the workforce. In TheAtlantic.com, Annie Lowrey reports this week that if Home Depot and CVS had devoted the money they spent on buybacks to staff raises, every employee would have gotten $18,000 more a year. McDonald’s could have given a $4,000 annual raise to all of its 2 million employees. No one really expects companies to treat employees that well, but unless success is more broadly shared, more Americans will sign up for extreme solutions—ranging from Trumpism to socialism. An economic system that turns a small minority into “winners” and a majority into “losers” will, sooner or later, bring about its own demise.